Investors decide not to back new isle airline

Grove Farm's move leaves FlyHawaii without major support

A group of local investors that includes America Online founder Steve Case has decided against buying into a planned new interisland carrier, FlyHawaii Airlines, leaving the airline without one of its major backers.

FlyHawaii, the brainchild of Lion Coffee founder James Delano, says its expected debut early next year now has been delayed because of the pending startup of another new interisland carrier, Phoenix-based regional carrier Mesa Airlines.

Mesa made a surprise announcement last month that it plans to begin flying in the islands early next year, joining FlyHawaii, Aloha Airlines, Hawaiian Airlines and Island Air.

Grove Farm Co., owned by Case, was looking at investing in FlyHawaii along with Case and Maui Land & Pineapple Co., of which Case is the largest shareholder. Grove Farm was leading the due diligence of the carrier.

"Had we decided to invest in FlyHawaii, it's likely that Steve Case and Maui Land & Pineapple would have seriously considered the investment," Haruki said. "A variety of reasons made us determine that the investment was not a timely one, including the Mesa announcement and the entire competitive airline business."

A FlyHawaii official said yesterday the company still plans to get off the ground sometime next year.

"We're committed to doing this," said Chris Parsons, vice president of administration for FlyHawaii. "It's just a question of the timing. We think there will be a big hole in the market for efficient turbo-prop (interisland flights). That's not what Mesa is and what (now-bankrupt) Aloha is going to be."

Parsons said FlyHawaii is in various stages of discussions with "more than a few" investors, but he declined to identity them. Parsons acknowledged there was one group of investors that FlyHawaii was talking to that dropped out after Mesa announced its plans. "They were going to be a major investor but they never committed," he said.

Haruki said Grove Farm had been interested in the airline because it offered alternative travel to the neighbor islands at a lower price to consumers. Maui Land & Pineapple previously took the lead in reviewing an investment in the planned Hawaii Superferry, and Grove Farm and Case later followed.

Mesa took another step forward yesterday when it appointed Greg Stephens as the new chief operating officer for its Hawaii operation. Stephens had been president of Mesa's Air Midwest subsidiary. The carrier also named Mickey Bowman as vice president of scheduling and planning in Hawaii.

Parsons said FlyHawaii plans to bide its time to see how the market for interisland flights shakes out because "everything changed" with Mesa's planned arrival.

"We'd just as soon wait if there's going to be a three-way battle between Hawaiian, Aloha and Mesa, because it seems like that wouldn't be the best time to enter the market," Parsons said. "We'd rather see what happens and enter the market after that."

Case was traveling yesterday and was unavailable for comment. David Cole, the chairman and CEO of Maui Land & Pineapple, said from Washington, D.C., that the company always is looking for investments, though he declined to be specific. Both Cole and Case grew up in Hawaii.

"We're always looking at opportunities to bring new enterprise into the Hawaiian economy that can benefit the people of Hawaii as well as visitors and our shareholders," Cole said. "We're always looking at deals and we're quite interested in encouraging a more competitive interisland airline environment."

Parsons said FlyHawaii is now seeking to raise $40 million to help it take flight, up from the $32 million it previously had been looking for. That amount is needed to meet an economic fitness test required by the federal Department of Transportation.

"We're very confident we'll get the funding," Parsons said. "Everyone who looks at the business plan agrees there's a large underserved interisland market that needs low prices to be triggered."

Parsons said FlyHawaii is the only airline with the business plan that can serve the interisland market with low prices.

"We don't think the others can hit the price point consistently with all their seats," he said.

FlyHawaii, which plans to begin service with flights to Kahului, Maui, before expanding to the other major islands, will not scale back its plans because of Mesa and limit itself to smaller airports, Parsons said.

"That's not the business plan we've planned," he said. "Yes, we want to serve the smaller markets, but we intend to serve the major routes as well. That's where the economies of scale are and where people want to fly."